What does Woolies have to do not to sink in Oz?
Life is tough Down Under as CEO Ian Moir is discovering, although his pay has more than doubled in 3 years
Woolworths, which has parted ways with its Australia CEO and written down the value of its business there by nearly R7-billion, still has a monumental task ahead if it is to stop the bleeding at department store chain David Jones.
Four months after it wrote down the value of David Jones by R6.8-billion, Woolworths said it had dismissed its CEO in that country, John Dixon. Dixon, a former Marks & Spencer executive, was relatively new to the expanded role – he was promoted from his post as David Jones CEO to Woolworths regional head less than a year ago.
His departure comes just months after Woolworths impaired the value of David Jones because of “the cyclical downturn and structural changes” affecting Australia’s retail sector, and “poor or delayed execution” on key projects.But it plans to continue investing in the business, which it bought for more than R20-billion in 2014. Among other initiatives, David Jones is adding food halls to its stores, and plans to refurbish its flagship store in Sydney using funds from the sale of another outlet.
However, some analysts are sceptical about Woolworths’s ability to stabilise David Jones, partly because the traditional department store model is fast becoming outdated.
Daniel Isaacs, an analyst at 36One Asset Management, said the Australian department store market had become “extremely tough” and initiatives to get David Jones back on track would be difficult to implement.
For instance, Woolworths would likely struggle to replicate its successful South African food offering in Australia – it would have to build supplier relationships from scratch and could encounter heftier competition in the premium food segment than it did in SA, Isaacs said.Electus Fund Managers equity analyst Damon Buss said while Woolworths was making progress with its other Australian business, Country Road, the same could not be said for David Jones.
“Country Road is a good business and is turning around – the changes to the management team in recent years seem to be working and they seem to be getting the fashion right.”
Revenues and margins were expanding, and Country Road’s e-commerce strategy had been a success so far, with online sales accounting for more than a quarter of revenues.“But with David Jones, I’m starting to lose a bit of faith that that business will come right. David Jones doesn’t have a big online presence at the moment. They’re trying to leverage the Country Road knowledge but it’s going to take time to get there.”
Another analyst, who asked not to be named, said Woolworths may be fighting a losing battle with David Jones. Rather than putting more money behind the chain, the group should consider cutting its losses and exiting that business altogether, the analyst said.
“The department store model is dying. The more you get involved in it the more good money you’re throwing away.”
In the three years after Woolworths bought David Jones – an acquisition that was approved by the retailer’s shareholders – Woolworths CEO Ian Moir’s guaranteed pay more than doubled, from R9-million in 2014 to R18.8-million in 2017.
However, he did not receive a performance bonus in 2017 as the group missed profit targets. Moir’s total remuneration for 2017 was R34.7-million, 26% higher than the R27.5-million he earned in 2014.